Endowment effect makes investors overvalue assets they already own from "summary" of The Little Book of Behavioral Investing by James Montier
The endowment effect is a psychological phenomenon that causes people to place a higher value on objects they already possess compared to identical objects they do not own. This bias can have significant implications for investors, as it can lead them to overvalue assets they already own. When individuals become attached to an asset, whether it be a stock, a house, or a piece of art, they tend to have a hard time letting go of it. This emotional attachment can cloud their judgment and cause them to assign a higher value to the asset than what it is objectively worth. Investors who fall victim to the endowment effect may be unwilling to sell an asset even when it no longer makes financial sense to hold onto it. They may hold onto losing investments in the...
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